Correlation Between Dow Jones and Southern California
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Southern California at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Dow Jones and Southern California into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Southern California Bancorp, you can compare the effects of market volatilities on Dow Jones and Southern California and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Dow Jones with a short position of Southern California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Southern California.
Diversification Opportunities for Dow Jones and Southern California
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Southern is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Southern California Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern California and Dow Jones is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Dow Jones Industrial are associated (or correlated) with Southern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern California has no effect on the direction of Dow Jones i.e., Dow Jones and Southern California go up and down completely randomly.
Pair Corralation between Dow Jones and Southern California
Assuming the 90 days trading horizon Dow Jones is expected to generate 4.3 times less return on investment than Southern California. But when comparing it to its historical volatility, Dow Jones Industrial is 2.51 times less risky than Southern California. It trades about 0.26 of its potential returns per unit of risk. Southern California Bancorp is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest 1,427 in Southern California Bancorp on August 28, 2024 and sell it today you would earn a total of 368.00 from holding Southern California Bancorp or generate 25.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Southern California Bancorp
Performance |
| Timeline |
Dow Jones and Southern California Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Southern California Bancorp
Pair trading matchups for Southern California
Pair Trading with Dow Jones and Southern California
The main advantage of trading using opposite Dow Jones and Southern California positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Southern California can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Southern California will offset losses from the drop in Southern California's long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| Southern California vs. Avidbank Holdings | Southern California vs. American Riviera Bank | Southern California vs. American Business Bk | Southern California vs. Private Bancorp of |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bonds Directory module to find actively traded corporate debentures issued by US companies.
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